They Cancelled My Preapproved Loan?

So you found a perfect home for $250,000 which is well under the $300,000 loan amount the lender preapproved you for.  The seller accepted your offer and the home inspection turned out great.  The lender asked for updated financial statements now that you are under contract.  And, out of nowhere, they disapprove your loan!

What happened?  For starters, lenders are swamped with loan applications.  Many buyers that start loan applications never end up buying a home or they end up going with a different lender.  So lenders often run your numbers through a basic algorithm to get a rough wag as to whether or not your application will be accepted.  But, they don’t actually process your loan through full underwriting to get final approval until you have an accepted offer.

In the meantime, the lender will hand you a “preapproval” letter which gives you the impression getting the loan approved is a slam dunk.  But, when they actually get around to running your loan application through the full underwriting approval process they may discover something the “algorithm” didn’t catch.  This happened to my buyer recently.  On the surface, the husband and wife had adequate combined income.  But, the wife’s income came from her new business.  Because the business had been operating for less than one year, the conservative underwriters would not count it.  This caused the loan application to get rejected even though my buyers received a “preapproval” letter months earlier.

Another way a loan may be disapproved is if your financial picture changes.  This can happen if you run up the balances on your credit cards, buy a new car, or change jobs.  Lenders have to see adequate income to support the loan payment you will be taking on.  Even quitting a lower paying job and getting a higher paying job can be a problem.  Income needs to be verifiable with “seasoned” pay statements.  You may claim to have a new higher paying job but the lender may not accept it if you can’t provide pay statements to verify it.

It can be unsettling to be under a month from closing and find out the bank won’t approve your loan.  What can you do?  I have a trick I learned during my 20 years in the Air Force.  Just because the answer is “no” now doesn’t mean the final answer is “no”.  Often you can ask to speak to a supervisor and the answer will change.  Or, in the case of my buyer, we talked to a different lender that was open to using income from a new home business.  We still managed to close on time so this was transparent to the seller.

Well real estate transactions can be a struggle until the very end.  Don’t lose hope.  It will be worth it in the end!